Pension drawdown income has dropped by around a third in a year, according to the latest figures from a leading pension provider.
Anyone approaching retirement this year can expect reduced returns from their savings due to a combination of falling gilt yields and last April’s cut in drawdown limits from 120% to 100%.
Gilt yields are now 2.25%, compared with 4% paid 12 months ago, while annuity rates have dropped around 20% in recent years.
For a 65 year old man retiring in February, these figures mean a £250,000 pension fund will have a maximum drawdown value £13,750, says SiPP provider AJ Bell.
Last year, the drawdown was £20,400 – a decrease of 32%.
The firm’s marketing director Billy Mackay said: “The government wants to protect those who opt for drawdown instead of annuities from exhausting their pension pots but we’ve seen little evidence to suggest this is happening.
“The fall in gilt rates has had a drastic effect on drawdown rates and threatens to pose real and unnecessary hardship to many people who may feel justifiably aggrieved that they can’t access the money they worked so hard to save.
“The government needs to fundamentally question the logic of linking drawdown income rates to gilts and instead look at fixed income factors linked to the clients age. While it consults on a more appropriate measure it should also consider restoring the 120% factor in the maximum income calculation.”
The figures prompted Labour Shadow Treasury financial secretary Chris Leslie to call for a commission to review options to maximise income for those approaching retirement.
The Treasury commented no review or commission is needed.
Meanwhile, financial provider Skandia suggests that investors can increase their pension returns by holding back and phasing their funds in to drawdown while waiting for markets and gilt yields to improve.
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